Oil producers undaunted as Colorado mulls fracking restrictions

(Reuters) - While Colorado environmental groups work to put a ballot measure before voters this fall that could severely hobble the U.S. energy industry, Whiting Petroleum Corp is busy figuring out where in the state it can spend $10 billion over the next decade.

An oil derrick is seen in a field near Denver, Colorado in this file photo from May 16, 2008. REUTERS/Lucas Jackson/Files

Whiting has little concern the ballot initiative will succeed, even after votes in several of the state’s cities last fall to ban fracking, the controversial use of high-pressure water mixed with chemicals and sand to extract oil and natural gas. At least one fracking ban has been challenged in court, and more legal tussles are likely.

The Denver-based company sees Colorado as key to its plan to sharply boost oil and natural gas production. Anadarko Petroleum Corp has similar growth plans for Colorado, aiming to spend at least $1.5 billion each year for the foreseeable future to develop its more than 800,000 acres there.

While environmentalists have long hoped Colorado’s increasingly liberal population could help them stem reliance on oil, victory is far from certain and polls show they face an uphill battle.

“Are we willing to fight? You bet we are,” said Jack Ekstrom, a Whiting executive and incoming chair of the Western Energy Alliance, an industry advocacy group. “If you ask me if I’m concerned, the answer is no. Our intent is to grow here, not shrink.”

Other operators are similarly confident. WPX Energy Inc plans to double its activity in Colorado this year and Noble Energy Inc has been running more and more seismic studies to see how many wells could fit on each of its drilling pads in the state.

All of the companies are hoping to get their own share of the state’s estimated 2 billion barrels of oil. A dozen states including California have clear rules for fracking, but the practice is banned in New York and some think Colorado could be a battleground in the U.S. energy boom.

“We’re confident that common sense and economic certainty is going to prevail in the end,” said Tisha Conoly Schuller, president of the Colorado Oil & Gas Association, an industry trade group that is challenging local fracking bans. “That’s why you don’t see (energy) companies changing their investment strategy in Colorado.”

Ballot proponents have until August to submit roughly 86,100 signatures to the secretary of state. The proposal, known as the Community Rights Amendment, would change the Colorado constitution to let each county, city, town or other “municipal subdivision” enact laws that protect “health, safety and welfare” for residents - essentially allowing them to regulate fracking, mining, and even marijuana use.

The industry says this scenario would be a regulatory nightmare for companies and threaten the more than $1.6 billion the state receives each year in oil and natural gas taxes, a third of which helps fund the state’s education budget.

Organizers say they want to strip power from state officials and return rights to local governments. The proposal is not directly written to curb oil or natural gas development, said Clifton Willmeng, a member of the Colorado Community Rights Network, the main ballot sponsor.

“The essence of this ballot is to give communities power over corporations,” Willmeng said. “Yes, it could be used to ban fracking, but it could also be used to limit genetic engineering or waste disposal sites.”

Still, oil and natural gas producers believe the ballot measure could only have been written to apply to them. And Willmeng acknowledged that had the ballot measure been approved before last fall, the towns that passed fracking bans wouldn’t now be facing legal scrutiny.

Navigating both sides of the complex issue has been difficult for Governor John Hickenlooper, a Democrat up for re-election this November. He would be on the same ballot with the proposed constitutional amendment if Willmeng’s group collects enough signatures.

Hickenlooper is expected to address the ballot measure at this week’s IHS CERAWeek conference in Houston, an annual meeting of global energy leaders.

Last month, Colorado officials approved new rules to limit air pollution from oil and gas drilling in an effort to cut the release of methane. The rules were the result of a collaboration between industry and environmental groups.

Energy companies say they recognize that old ways of dealing with residents have to change.

Issues that matter to one community, such as water pollution, might matter less to another, where air quality could be a higher concern. Companies say they work with local leaders to explain how fracking affects these and other concerns. This is a time-intensive activity that differs from other states where broad ad campaigns work better.

“What we’ve seen lately is how the broader business community is coming together in the state to talk about keeping Colorado a great place to invest for all industries, not just energy,” said Kelly Swan of WPX Energy.

These outreach efforts are crucial, the industry admits, for generating goodwill.

“We’re very committed to Colorado,” said Anadarko executive Scott Moore. “And we look forward to the opportunity to invest in Colorado.”

Anadarko has a 100 percent rate of return in Colorado’s Wattenberg shale formation, highlighting just how lucrative the area can be.

Matt Moore, a hotel industry sales manager who lives just outside Denver, says he’s not sure if he’ll vote for the proposed ballot measure if it receives enough signatures.

Regardless, though, he said he started to support energy development in the state after finding out more about fracking and other energy practices.

“People distrust both sides,” Moore said. “They’re not sure where the right information is coming from.”